Why is Wall Street so divorced from reality? A psychological explanation.

The Masters of the Universe are in a state of denial

Wall Street
(Image credit: (REUTERS/Chip East))

Noah Smith and Paul Krugman have both noted the strange fact that the financial class, almost across the board, continues to argue for more austerity and a tighter monetary policy, despite the adverse effects these policies could have on the economy as a whole. This kind of blinkered thinking is a hallmark of the 1 percent, which compared to the rest of the country is obsessed with deficit reduction and cutting social insurance.

When Smith talks about motivated reasoning — noting that low inflation and higher interest rates both benefit moneyed interests — I think he's on to the nut of the answer: That class interests are at work. This is a basic struggle over resources, which in this case means that maintaining one's social position is more important than the theoretical benefits of more growth in the broader economy.

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Ryan Cooper

Ryan Cooper is a national correspondent at TheWeek.com. His work has appeared in the Washington Monthly, The New Republic, and the Washington Post.